RAND Rand Capital Corporation

• Total investment income increased 12% to $1.7 million for the quarter compared with the third quarter last year driven by strong growth in interest income
• Net asset value per share (“NAV”) was $23.77 at September 30, 2023, up 6% from year-end 2022
• Invested $7.8 million in new investments during the quarter

Rand Capital Corporation (Nasdaq: RAND) (“Rand” or the “Company”), a business development company providing alternative financing for lower middle market companies, announced its results for the third quarter ended September 30, 2023.

Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, “We delivered another quarter of strong performance. Our results have been supported by the sustained growth in interest income, primarily attributed to the continued deployment of capital as part of our investment strategy, which is centered on high-quality debt investments.

“Looking forward, we remain focused on generating strong, consistent returns for our shareholders. During the quarter, we completed two new investments that fit well within our investment objectives and demonstrate our ability to attract opportunities in the current market environment. The expansion of the portion of our portfolio invested into debt investments has proven to be a cornerstone of our success, and we expect to continue this trajectory of growth well into the future.”

Third Quarter Highlights (compared with the prior-year period unless otherwise noted)

• Total investment income grew $187,000, or 12%, to $1.7 million, which reflected a 40% increase in interest from portfolio companies, partially offset by lower dividend income. The decrease in dividend income was largely due to a large prior-year dividend from a portfolio company, which did not repeat in the third quarter of 2023, and the sale of the Company’s investment in Dealer Solutions and Design (DSD) during the second quarter of 2023.
• Total expenses were $810,000 compared with $499,000 in the prior-year third quarter. The increase largely reflects a $264,000 increase in interest expense on borrowings under the senior revolving credit facility entered into in June 2022 to fund growth. Partially offsetting was a change in accrued capital gains incentive fees to the Company’s external investment adviser. The current period included a credit of $41,000 in capital gains incentive fees compared with an expense of $22,000 for the third quarter of 2022.
• Adjusted expenses, which exclude capital gains incentive fees and is a non-GAAP financial measure, were $851,000 compared with $477,000 in the third quarter of 2022. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment income was $799,000, or $0.31 per share, compared with $1.0 million, or $0.39 per share, in the third quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.29 per share, compared with $0.40 in last year’s third quarter. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted net investment income per share.

Portfolio and Investment Activity

As of September 30, 2023, Rand’s portfolio included investments with a fair value of $74.7 million across 30 portfolio businesses. This was up $13.2 million, or 21%, from December 31, 2022, and reflects new and follow on investments and valuation adjustments in multiple portfolio companies. This was partially offset by equity sales and loan repayments. At September 30, 2023, the portfolio was comprised of approximately 63% in debt investments, 27% in equity investments in private companies, and 10% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.45%.

Third quarter 2023:

• Funded $4.0 million total investment in All About People, which included $3.0 million of senior debt at 16%, and a $1.0 million preferred equity investment, which will carry a 12% dividend. All About People is a full-service staffing and executive search firm, with a growing focus on the healthcare industry.
• Funded $3.8 million to First Coast Mulch, consisting of a $3.4 million subordinate note at 13% and an interest earning convertible note of $420,000. First Coast Mulch is a commercial mulch installation company that covers the north and central Florida market.

Liquidity and Capital Resources

Cash at the end of the third quarter of 2023 was $3.5 million, up from $1.4 million at year-end 2022, reflecting the proceeds received from exiting DSD and ACV Auctions share sales in the second quarter of 2023. As of September 30, 2023, the Company held shares valued at approximately $4.2 million in other publicly traded BDCs and $3.0 million in ACV Auctions, all of which are available for future liquidity needs including dividends and portfolio investments.

At September 30, 2023, Rand had outstanding borrowings of $13.8 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.8% at quarter-end.

The Company did not repurchase any outstanding common stock during the third quarter of 2023.

Dividends

On July 25, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share, which was paid during the third quarter to shareholders of record as of August 31, 2023.

Webcast and Conference Call

Rand will host a conference call and webcast on Monday, November 6, 2023, at 1:30 p.m. Eastern Time, to review its financial results. The review will be accompanied by a slide presentation, which will be available on Rand’s website at www.randcapital.com in the “Investor Relations” section. Rand’s conference call can be accessed by calling (201) 689-8263. Alternatively, the webcast can be monitored on Rand’s website at www.randcapital.com under “Investor Relations” where the replay will also be available.

A telephonic replay will be available from 5:30 p.m. ET on the day of the call through Monday,

November 20, 2023. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13741203. A transcript of the call will also be posted once available.

ABOUT RAND CAPITAL

Rand Capital (Nasdaq: RAND) is an externally managed business development company (BDC). The Company’s investment objective is to maximize total return to its shareholders with current income and capital appreciation by focusing its debt and related equity investments in privately-held, lower middle market companies with committed and experienced managements in a broad variety of industries. Rand invests in early to later stage businesses that have sustainable, differentiated and market-proven products, revenue of more than $2 million and a path to free cash flow or up to $5 million in EBITDA. The Company’s investment activities are managed by its external investment adviser, Rand Capital Management, LLC. Additional information can be found at the Company’s website where it regularly posts information: https://www.randcapital.com/.

Safe Harbor Statement

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than historical facts, including but not limited to statements regarding the strategy of the Company and its outlook; statements regarding the implementation of the Company’s strategy and its growth trajectory; and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue,” “target” or other similar words or expressions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) evolving legal, regulatory and tax regimes; (2) changes in general economic and/or industry specific conditions; and (3) other risk factors as detailed from time to time in Rand ’s reports filed with the Securities and Exchange Commission (“SEC”), including Rand’s annual report on Form 10-K for the year ended December 31, 2022, quarterly reports on Form 10-Q, and other documents filed with the SEC. Consequently, such forward-looking statements should be regarded as Rand’s current plans, estimates and beliefs. Except as required by applicable law, Rand assumes no obligation to update the forward-looking information contained in this release.

FINANCIAL TABLES FOLLOW

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

 

 

September 30, 2023 (Unaudited)

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

Control investments (cost of $5,207,299 and $4,660,017, respectively)

 

$

4,083,489

 

 

$

3,536,207

 

Affiliate investments (cost of $43,946,584 and $30,204,160, respectively)

 

 

51,097,315

 

 

 

38,241,589

 

Non-Control/Non-Affiliate investments (cost of $17,108,025 and $20,852,060, respectively)

 

 

19,503,481

 

 

 

19,726,463

 

Total investments, at fair value (cost of $66,261,908 and $55,716,237, respectively)

 

 

74,684,285

 

 

 

61,504,259

 

Cash

 

 

3,479,772

 

 

 

1,368,996

 

Interest receivable

 

 

237,193

 

 

 

208,338

 

Prepaid income taxes

 

 

—

 

 

 

76,396

 

Deferred tax asset, net

 

 

134,087

 

 

 

28,160

 

Other assets

 

 

504,345

 

 

 

295,043

 

Total assets

 

$

79,039,682

 

 

$

63,481,192

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Due to investment adviser

 

$

268,609

 

 

$

562,221

 

Accounts payable and accrued expenses

 

 

169,995

 

 

 

66,680

 

Income taxes payable

 

 

29,577

 

 

 

—

 

Line of credit

 

 

13,750,000

 

 

 

2,550,000

 

Capital gains incentive fees

 

 

2,907,700

 

 

 

2,167,000

 

Deferred revenue

 

 

561,524

 

 

 

413,971

 

Total liabilities

 

 

17,687,405

 

 

 

5,759,872

 

 

 

 

 

 

 

 

Stockholders’ equity (net assets):

 

 

 

 

 

 

Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916; shares outstanding: 2,581,021 at 9/30/23 and 12/31/22

 

 

264,892

 

 

 

264,892

 

Capital in excess of par value

 

 

51,464,267

 

 

 

51,464,267

 

Treasury stock, at cost: 67,895 shares at 9/30/23 and 12/31/22

 

 

(1,566,605

)

 

 

(1,566,605

)

Total distributable earnings

 

 

11,189,723

 

 

 

7,558,766

 

Total stockholders’ equity (net assets) (per share –9/30/23: $23.77; 12/31/22: $22.36)

 

 

61,352,277

 

 

 

57,721,320

 

Total liabilities and stockholders’ equity (net assets)

 

$

79,039,682

 

 

$

63,481,192

 

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended September 30, 2023

 

 

Three months ended September 30, 2022

 

 

Nine months ended September 30, 2023

 

 

Nine months ended September 30, 2022

 

Investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest from portfolio companies:

 

 

 

 

 

 

 

 

 

 

 

 

Control investments

 

$

175,962

 

 

$

124,408

 

 

$

506,800

 

 

$

124,408

 

Affiliate investments

 

 

1,002,553

 

 

 

581,911

 

 

 

2,731,575

 

 

 

1,767,024

 

Non-Control/Non-Affiliate investments

 

 

357,162

 

 

 

393,686

 

 

 

1,067,745

 

 

 

1,125,544

 

Total interest from portfolio companies

 

 

1,535,677

 

 

 

1,100,005

 

 

 

4,306,120

 

 

 

3,016,976

 

Interest from other investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

 

456

 

 

 

48

 

 

 

692

 

 

 

49

 

Total interest from other investments

 

 

456

 

 

 

48

 

 

 

692

 

 

 

49

 

Dividend and other investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

13,126

 

 

 

305,959

 

 

 

419,951

 

 

 

552,469

 

Non-Control/Non-Affiliate investments

 

 

141,290

 

 

 

115,700

 

 

 

401,805

 

 

 

358,700

 

Total dividend and other investment income

 

 

154,416

 

 

 

421,659

 

 

 

821,756

 

 

 

911,169

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

Control investments

 

 

4,515

 

 

 

3,900

 

 

 

12,726

 

 

 

3,900

 

Affiliate investments

 

 

40,072

 

 

 

19,340

 

 

 

246,816

 

 

 

72,160

 

Non-Control/Non-Affiliate investments

 

 

5,978

 

 

 

9,313

 

 

 

19,934

 

 

 

27,941

 

Total fee income

 

 

50,565

 

 

 

32,553

 

 

 

279,476

 

 

 

104,001

 

Total investment income

 

 

1,741,114

 

 

 

1,554,265

 

 

 

5,408,044

 

 

 

4,032,195

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Base management fee

 

 

268,609

 

 

 

225,730

 

 

 

769,869

 

 

 

696,772

 

Capital gains incentive fees

 

 

(41,300

)

 

 

22,000

 

 

 

740,700

 

 

 

(880,760

)

Interest expense

 

 

290,522

 

 

 

26,042

 

 

 

707,834

 

 

 

26,042

 

Professional fees

 

 

120,828

 

 

 

126,089

 

 

 

392,110

 

 

 

569,310

 

Stockholders and office operating

 

 

57,097

 

 

 

41,739

 

 

 

206,481

 

 

 

163,327

 

Directors' fees

 

 

66,550

 

 

 

47,800

 

 

 

197,791

 

 

 

137,783

 

Administrative fees

 

 

37,250

 

 

 

—

 

 

 

111,750

 

 

 

—

 

Insurance

 

 

10,380

 

 

 

9,525

 

 

 

33,720

 

 

 

31,788

 

Corporate development

 

 

—

 

 

 

—

 

 

 

4,267

 

 

 

3,753

 

Other operating

 

 

—

 

 

 

34

 

 

 

—

 

 

 

124

 

Total expenses

 

 

809,936

 

 

 

498,959

 

 

 

3,164,522

 

 

 

748,139

 

Net investment income before income taxes:

 

 

931,178

 

 

 

1,055,306

 

 

 

2,243,522

 

 

 

3,284,056

 

Income taxes, including excise tax expense

 

 

132,595

 

 

 

45,140

 

 

 

237,393

 

 

 

83,750

 

Net investment income

 

 

798,583

 

 

 

1,010,166

 

 

 

2,006,129

 

 

 

3,200,306

 

Net realized (loss) gain on sales and dispositions of investments:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

—

 

 

 

—

 

 

 

2,596,094

 

 

 

167,159

 

Non-Control/Non-Affiliate investments

 

 

(2,802,731

)

 

 

1,919

 

 

 

(1,527,190

)

 

 

523,432

 

Net realized (loss) gain on sales and dispositions of investments,

before income taxes

 

 

(2,802,731

)

 

 

1,919

 

 

 

1,068,904

 

 

 

690,591

 

Income tax expense

 

 

—

 

 

 

—

 

 

 

338,158

 

 

 

—

 

Net realized (loss) gain on sales and dispositions of investments

 

 

(2,802,731

)

 

 

1,919

 

 

 

730,746

 

 

 

690,591

 

Net change in unrealized appreciation/depreciation on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

—

 

 

 

—

 

 

 

(886,698

)

 

 

47,841

 

Non-Control/Non-Affiliate investments

 

 

2,599,652

 

 

 

92,817

 

 

 

3,521,053

 

 

 

(5,140,762

)

Change in unrealized appreciation/depreciation before income

taxes

 

 

2,599,652

 

 

 

92,817

 

 

 

2,634,355

 

 

 

(5,092,921

)

Deferred income tax benefit

 

 

—

 

 

 

—

 

 

 

(66,441

)

 

 

—

 

Net change in unrealized appreciation/depreciation on investments

 

 

2,599,652

 

 

 

92,817

 

 

 

2,700,796

 

 

 

(5,092,921

)

Net realized and unrealized (loss) gain on investments

 

 

(203,079

)

 

 

94,736

 

 

 

3,431,542

 

 

 

(4,402,330

)

Net increase (decrease) in net assets from operations

 

$

595,504

 

 

$

1,104,902

 

 

$

5,437,671

 

 

$

(1,202,024

)

Weighted average shares outstanding

 

 

2,581,021

 

 

 

2,581,021

 

 

 

2,581,021

 

 

 

2,581,021

 

Basic and diluted net increase (decrease) in net assets from operations per share

 

$

0.23

 

 

$

0.43

 

 

$

2.11

 

 

$

(0.47

)

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

 

 

Three months ended September 30, 2023

 

 

Three months ended September 30, 2022

 

 

Nine months ended September 30, 2023

 

 

Nine months ended September 30, 2022

 

Net assets at beginning of period

 

$

61,402,028

 

 

$

57,664,184

 

 

$

57,721,320

 

 

$

60,745,416

 

Net investment income

 

 

798,583

 

 

 

1,010,166

 

 

 

2,006,129

 

 

 

3,200,306

 

Net realized (loss) gain on sales and dispositions of investments

 

 

(2,802,731

)

 

 

1,919

 

 

 

730,746

 

 

 

690,591

 

Net change in unrealized appreciation/depreciation on investments

 

 

2,599,652

 

 

 

92,817

 

 

 

2,700,796

 

 

 

(5,092,921

)

Net increase (decrease) in net assets from operations

 

 

595,504

 

 

 

1,104,902

 

 

 

5,437,671

 

 

 

(1,202,024

)

Declaration of dividend

 

 

(645,255

)

 

 

(387,153

)

 

 

(1,806,714

)

 

 

(1,161,459

)

Net assets at end of period

 

$

61,352,277

 

 

$

58,381,933

 

 

$

61,352,277

 

 

$

58,381,933

 

 

Rand Capital Corporation and Subsidiaries Reconciliation of GAAP Total Expense to Non-GAAP Adjusted Expenses (Unaudited)

In addition to reporting total expenses, which is a U.S. generally accepted accounting principle (“GAAP”) financial measure, Rand presents adjusted expenses, which is a non-GAAP financial measure. Adjusted expenses is defined as GAAP total expenses removing the effect of any (credits)/expenses for capital gains incentive fees. GAAP total expenses is the most directly comparable GAAP financial measure. Rand believes that adjusted expenses provides useful information to investors regarding financial performance because it is a method the Company uses to measure its financial and business trends related to its results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

 

Three months ended

September 30, 2023

 

Three months ended

September 30,

2022

Total expenses

$

809,936

 

 

$

498,959

Exclude (credits)/expenses for capital gains incentive fees

 

(41,300

)

 

 

22,000

Adjusted expenses

$

851,236

 

 

$

476,959

   

Reconciliation of Adjusted Net Investment Income per Share to GAAP Net Investment Income per Share (Unaudited)

In addition to reporting Net Investment Income per Share, which is a U.S. generally accepted accounting principle (“GAAP”) financial measure, the Company presents Adjusted Net Investment Income per Share, which is a non-GAAP financial measure. Adjusted Net Investment Income per Share is defined as GAAP Net Investment Income per Share removing the effect of any (credits)/expenses for capital gains incentive fees. GAAP Net Investment Income per Share is the most directly comparable GAAP financial measure. Rand believes that Adjusted Net Investment Income per Share provides useful information to investors regarding financial performance because it is a method the Company uses to measure its financial and business trends related to its results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

 

Three months ended

September 30, 2023

 

Three months ended

September 30,

2022

Net investment income per share

$

0.31

 

 

$

0.39

Exclude (credits)/expenses for capital gains incentive fees

 

(0.02

)

 

 

0.01

Adjusted net investment income per share

$

0.29

 

 

$

0.40

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231106994188/en/

Company: Daniel P. Penberthy President and CEO 716.853.0802 dpenberthy@randcapital.com Investors: Deborah K. Pawlowski / Craig P. Mychajluk Kei Advisors LLC 716-843-3908 / 716-843-3832 dpawlowski@keiadvisors.com / cmychajluk@keiadvisors.com